Denver Firm to Buy 87% of J. M. Peters for $100 Million as Share Prices Keep Rising

J. M. Peters, a Newport Beach-based home builder, is expected to get a new majority owner this week. And at least one analyst is encouraging investors to become minority owners to take advantage of continuing appreciation of the company’s common stock.

Last month, MDC Holdings in Denver agreed to pay $100 million to acquire Dallas-based Southmark Corp.’s 87% ownership of Peters. MDC President David Manarich said the purchase is expected to be complete March 31.

The remaining 13% of the firm was sold to investors last September in a $12-million stock offering. The 1.75 million publicly held shares are traded in the over-the-counter market.

Peters stock has appreciated considerably in recent months, and it jumped to nearly $8 per share following MDC’s acquisition announcement. Peters closed Friday at $7.50 per share, down 37.5 cents during a week in which most stocks lost ground.

The stock is still up 28% for the month, and it is 62% higher than 1987’s closing price of $4.625 per share.

Some investors have speculated that MDC might make a tender offer for the publicly held shares so it could acquire 100% ownership.

MDC hasn’t discussed its intentions, but Barbara K. Allen, a home building analyst at Prudential-Bache Research in New York, said a tender offer isn’t likely.

“MDC would benefit by having the shares out there because it will still benefit from Peters’ earnings, and the shares are going to gain in value, making the whole company worth more,” Allen said.

Purchases Recommended

Allen, who last week issued a 20-page research report on Peters in which she aggressively recommended purchase of the firm’s shares, said the stock could hit $15 per share over the next year.

The reason for her bullishness is Peters’ operating performance.

For fiscal 1988, which ended Feb. 29, Peters reported earnings of $21.4 million, or $1.67 per share, more than four times the $5.2 million of a year earlier.

The earnings were a great surprise on Wall Street, where the brokerage firm of Drexel Burnham Lambert had expected Peters to earn only $1.25 per share.

Allen, who tracks MDC’s performance, began following Peters only after MDC’s purchase announcement and didn’t project fiscal 1988 results.

“I wish I would have been watching them before the fourth quarter,” she said.

For the fourth quarter, Peters’ earnings totaled $15.1 million, more than six times the $2.4 million posted in the year-earlier period.

Revenues for the year were $284 million, up 31% from $217 million, and fourth-quarter revenues were $145 million, up 75% from $83 million.

Allen said the company’s backlog for home orders was up sharply in the quarter. She said Peters’ profit margins expanded, which should continue to be the case this year. And even though MDC will become the new owner, Peters’ management team is expected to remain in place.

For fiscal 1989, Allen expects Peters to earn $2.10 per share on revenues of $350 million.

She said the firm’s growth beyond 1989 might be affected by a slowed-down economy and by possible slow-growth initiatives in Southern California.

But she called Peters one of the best-managed firms in the home-building business, and she said the effects of slow-growth regulations aren’t yet known.

“Besides, they have agreements with developers to build homes,” Allen said. “A slow-growth initiative can’t take away those agreements.”